Daily Market Update for 2/25
Trend lines drawn from the 2/16 ATH (8d), 2/19 (5d) and today 2/25 (1d).
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
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Thursday, February 25, 2021
Facts: -3.52%, Volume higher, Closing range: 10%, Body: 73%
Good: Stayed above 13,000
Bad: Thick red body, low closing range, selling all day
Highs/Lows: Lower high, Lower low
Candle: Thick red body with an upper wick from a brief morning upward move
Advance/Decline: Over eight declining stocks for every advancing stocks
Indexes: SPX (-2.45%), DJI (-1.75%), RUT (-3.69%), VIX (+35.88%)
Sectors: Utilities (XLU -0.90%) and Healthcare (XLB -1.00%)) were top. Consumer Staples (XLP -0.06%) and Utilities (XLU -1.17%)
Expectation: Lower
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Market Overview
Caution turns to fear. There is not much positive to look at in today's indexes or the market indicators I use for the daily update. Nonetheless, it's best to look at both sides of action and set some expectations and a plan for tomorrow.
The market opened with mixed economic news. Initial Jobless Claims and Durable Goods Orders were better than expected, but Q4 GDP and Pending Home Sales for January were disappointing. After a quick rise in the first minutes, the market started a sell-off that lasted the rest of the day. A brief rally as the afternoon started quickly stalled and reversed.
The Nasdaq closed the day with a -3.52% loss. With higher volume and the breadth of the selling, it was clearly a distribution day. The 10% closing range left the index near it's late-in-the-day low with a 73% red body covering the candle. The only positive is that the index held support above the 13,000 area. Every stock declined except GME and AMC. Not really, but feels like that.
The Russell 2000 (RUT) was the worst performer of the day, despite the possibility of the stimulus that would help smaller businesses. The RUT declined -3.69%. The S&P 500 (SPX) declined -2.45% and the Dow Jones Industrial average (DJI) declined -1.75%.
The VIX volatility index rose +35.88%.
The sectors are also telling of the broad sell-off. Every sector declined for the day. The top of the sector list is filled with the defensive plays of Utilities (XLU -0.90%), Healthcare (-1.00%) and Consumer Staples (-1.09%). Technology (XLK -3.50%) and Consumer Discretionary (XLY -3.72%) were at the bottom of the list.
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Economic Indicators
The US Dollar (DXY) declined -0.05%.
Yields on 30y, 20y and 10y treasury bonds all rose for the day. The US02Y yield rose %41 after investors showed very little interest in the 7y notes auction. The rising yields will eventually impact interest rates on loans, making money more expensive and eating away at the bottom line for debt-heavy companies and sectors.
Both High Yield (HYG) corporate bonds and Investor Grade (LQD) corporate bonds sold off sharply. The spread between corporate bond and treasury bond yields remained about the same.
Silver (SILVER) and Gold (GOLD) declined. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) declined. Copper (COPPER1!) declined while Aluminum (ALI1!) advanced.
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Investor Sentiment
The put/call ratio rose to 0.624. The put/call ratio (PCCE) is a contrarian indicator that shows overly bullish or overly bearish investor behavior. The 0.7 level is considered normal. As it approaches 0.60 (overly bullish) and below, watch for a possible pullback in the market.
The CNN Fear & Greed index remained about the same. The weekly NAAIM exposure index declined to 85 as money managers reduced positions.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
Apple (APPL), Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL) all had significant declines for the day. All four closed below the 21d EMA lines, while Apple and Amazon are trading below their 50d MA. Amazon's 21d EMA is about to cross under the 50d MA.
Only a handful of mega-caps closed with gains and those were just a fraction of a point. Taiwan Semiconductor (TSM) and Nvidia (NVDA) were at the bottom of the list, leading semiconductors lower. Tesla declined -8.06%.
Twitter (TWTR) and Moderna (MRNA) were the only growth stocks in my list with gains, advancing +3.71% and +2.48%. Ehang Holdings (EH) continued its recent volatility with a -15.44% decline. NIO (NIO), Grow Generation (GRWG), Palantir (PLTR) were other big losers, all declined over 9%.
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Looking ahead
The economic news to watch for before market open on Friday includes Consumer Price Index data that is a key measure of inflation. Inflation is on every investors mind this past two weeks. Also being released before market open will be Goods Trade Balance, Personal Spending, and Retail Inventories.
Consumer Expectations and Sentiment data will be released after market open. The US Federal Budget will be released in the afternoon.
Fridays earnings releases will include DraftKings (DKNG), and Cinemark (CNK).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
The seven-day trend lien from the 2/16 ATH is pointing to a +0.26% gain to bring the index back to the middle of the regression trend channel.
The five-day trend line points to another -0.32% loss for tomorrow.
If today's sell-off continues into Friday, the one-day trend line is pointing at another -3.33% decline, putting the index below the 13,000 support area.
If there is further downside, the index held the 12,550 area in an early January dip. If it passes that area, the next support area is 12,250.
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Wrap-up
It's another day to remind the reader that the expectation set each day is not a prediction. It's the direction we are watching for the index to go. When it breaks the expectation, it's time to look closely at why the change.
Sometimes it's just a simple pullback. Today it was a clear distribution day as investors sold nearly every sector and cap segment. The caution that has shown up several times the past few weeks, turned to fear, as investors either moved to defensive plays or exited the market.
Hopefully you already have your risk management in play with either stop losses or reduced position sizes. There's still room for an upside reversal as we hit key support areas, but it's reasonable to expect a move lower in the short term.
Stay healthy and trade safe!
Ideas always welcome in the comments. Errors will be amended as comments on TradingView or corrected inline in my blog.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Thursday, February 25, 2021
Facts: -3.52%, Volume higher, Closing range: 10%, Body: 73%
Good: Stayed above 13,000
Bad: Thick red body, low closing range, selling all day
Highs/Lows: Lower high, Lower low
Candle: Thick red body with an upper wick from a brief morning upward move
Advance/Decline: Over eight declining stocks for every advancing stocks
Indexes: SPX (-2.45%), DJI (-1.75%), RUT (-3.69%), VIX (+35.88%)
Sectors: Utilities (XLU -0.90%) and Healthcare (XLB -1.00%)) were top. Consumer Staples (XLP -0.06%) and Utilities (XLU -1.17%)
Expectation: Lower
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Overview
Caution turns to fear. There is not much positive to look at in today's indexes or the market indicators I use for the daily update. Nonetheless, it's best to look at both sides of action and set some expectations and a plan for tomorrow.
The market opened with mixed economic news. Initial Jobless Claims and Durable Goods Orders were better than expected, but Q4 GDP and Pending Home Sales for January were disappointing. After a quick rise in the first minutes, the market started a sell-off that lasted the rest of the day. A brief rally as the afternoon started quickly stalled and reversed.
The Nasdaq closed the day with a -3.52% loss. With higher volume and the breadth of the selling, it was clearly a distribution day. The 10% closing range left the index near it's late-in-the-day low with a 73% red body covering the candle. The only positive is that the index held support above the 13,000 area. Every stock declined except GME and AMC. Not really, but feels like that.
The Russell 2000 (RUT) was the worst performer of the day, despite the possibility of the stimulus that would help smaller businesses. The RUT declined -3.69%. The S&P 500 (SPX) declined -2.45% and the Dow Jones Industrial average (DJI) declined -1.75%.
The VIX volatility index rose +35.88%.
The sectors are also telling of the broad sell-off. Every sector declined for the day. The top of the sector list is filled with the defensive plays of Utilities (XLU -0.90%), Healthcare (-1.00%) and Consumer Staples (-1.09%). Technology (XLK -3.50%) and Consumer Discretionary (XLY -3.72%) were at the bottom of the list.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Economic Indicators
The US Dollar (DXY) declined -0.05%.
Yields on 30y, 20y and 10y treasury bonds all rose for the day. The US02Y yield rose %41 after investors showed very little interest in the 7y notes auction. The rising yields will eventually impact interest rates on loans, making money more expensive and eating away at the bottom line for debt-heavy companies and sectors.
Both High Yield (HYG) corporate bonds and Investor Grade (LQD) corporate bonds sold off sharply. The spread between corporate bond and treasury bond yields remained about the same.
Silver (SILVER) and Gold (GOLD) declined. Crude Oil (CRUDEOIL1!) advanced. Timber (WOOD) declined. Copper (COPPER1!) declined while Aluminum (ALI1!) advanced.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Investor Sentiment
The put/call ratio rose to 0.624. The put/call ratio (PCCE) is a contrarian indicator that shows overly bullish or overly bearish investor behavior. The 0.7 level is considered normal. As it approaches 0.60 (overly bullish) and below, watch for a possible pullback in the market.
The CNN Fear & Greed index remained about the same. The weekly NAAIM exposure index declined to 85 as money managers reduced positions.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Market Leaders
Apple (APPL), Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL) all had significant declines for the day. All four closed below the 21d EMA lines, while Apple and Amazon are trading below their 50d MA. Amazon's 21d EMA is about to cross under the 50d MA.
Only a handful of mega-caps closed with gains and those were just a fraction of a point. Taiwan Semiconductor (TSM) and Nvidia (NVDA) were at the bottom of the list, leading semiconductors lower. Tesla declined -8.06%.
Twitter (TWTR) and Moderna (MRNA) were the only growth stocks in my list with gains, advancing +3.71% and +2.48%. Ehang Holdings (EH) continued its recent volatility with a -15.44% decline. NIO (NIO), Grow Generation (GRWG), Palantir (PLTR) were other big losers, all declined over 9%.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Looking ahead
The economic news to watch for before market open on Friday includes Consumer Price Index data that is a key measure of inflation. Inflation is on every investors mind this past two weeks. Also being released before market open will be Goods Trade Balance, Personal Spending, and Retail Inventories.
Consumer Expectations and Sentiment data will be released after market open. The US Federal Budget will be released in the afternoon.
Fridays earnings releases will include DraftKings (DKNG), and Cinemark (CNK).
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Trends, Support and Resistance
The seven-day trend lien from the 2/16 ATH is pointing to a +0.26% gain to bring the index back to the middle of the regression trend channel.
The five-day trend line points to another -0.32% loss for tomorrow.
If today's sell-off continues into Friday, the one-day trend line is pointing at another -3.33% decline, putting the index below the 13,000 support area.
If there is further downside, the index held the 12,550 area in an early January dip. If it passes that area, the next support area is 12,250.
-=x=-=x=-=x=-=x=-=x=-=x=-=x=-
Wrap-up
It's another day to remind the reader that the expectation set each day is not a prediction. It's the direction we are watching for the index to go. When it breaks the expectation, it's time to look closely at why the change.
Sometimes it's just a simple pullback. Today it was a clear distribution day as investors sold nearly every sector and cap segment. The caution that has shown up several times the past few weeks, turned to fear, as investors either moved to defensive plays or exited the market.
Hopefully you already have your risk management in play with either stop losses or reduced position sizes. There's still room for an upside reversal as we hit key support areas, but it's reasonable to expect a move lower in the short term.
Stay healthy and trade safe!
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